ANI Pharmaceuticals, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with the three months ended March 31, 2020. ANI develops, manufactures, and markets branded and generic pharmaceuticals, with a focus on niche and complex products. The company reports one operating segment.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Net revenue | $54.5 million | $49.8 million |
| Operating income (loss) | $3.0 million | $(7.8) million |
| Net income (loss) | $0.1 million; $0.01 per diluted share | $(7.0) million; $(0.59) per diluted share |
| Operating cash flow | $20.7 million | $1.7 million |
| Cash and cash equivalents | $25.1 million | $7.9 million at December 31, 2020 |
| Current assets / current liabilities | $182.8 million / $82.8 million | $170.3 million / $78.6 million at December 31, 2020 |
| Debt | $184.6 million outstanding, before deferred financing costs | $67.5 million available on revolver at March 31, 2021 |
Cost of sales, excluding depreciation and amortization, was $20.0 million, or 36.7% of revenue. Operating margin was 5.5%, compared with an operating loss margin of 15.7% in Q1 2020; net margin was approximately 0.1%. The quarter’s comprehensive income was $6.5 million, including a $6.4 million after-tax gain on the interest-rate swap recorded in other comprehensive income. Cash-flow statement ending cash of $30.1 million includes $5.0 million of restricted cash.
Changes versus the prior comparable period
- Revenue rose 9.5%, principally because ANI recognized $11.2 million of final Kite/Yescarta-related royalty revenue. Management does not expect further royalties under that arrangement.
- Generic product revenue fell 12.0% to $33.0 million, and branded product revenue fell 17.9% to $7.5 million. ANI attributed pressure in part to lower prescription activity associated with COVID-19, lower generic prices, and product mix.
- Contract manufacturing revenue increased 30.3% to $2.6 million. Cost of sales declined 8.3%, partly because Q1 2020 included $2.7 million of acquired-inventory fair-value step-up cost.
- Research and development expense decreased 53.2% to $3.0 million, mainly because the prior-year period included $3.8 million of acquired in-process R&D. Selling, general, and administrative expense increased 28.5% to $17.6 million, including $2.9 million of Novitium acquisition transaction costs.
- Operating cash flow increased to $20.7 million from $1.7 million. Investing cash use was $0.7 million, compared with $57.5 million in Q1 2020, which included the Amerigen acquisition. Financing cash use was $2.7 million, primarily for scheduled debt payments.
Outlook, transactions, and risks
- Novitium acquisition: Agreement signed March 8, 2021; ANI expected closing in the second half of 2021, subject to customary conditions, regulatory approvals, and shareholder approval. Proposed consideration includes an estimated $89.5 million cash payment, 2,466,667 common shares, and up to $46.5 million in contingent earn-outs. Financing plans include a new $340 million secured facility and a $25 million preferred-stock PIPE investment. ANI cautioned about completion, integration, debt-service, and dilution risks; up to 3,203,478 common shares could be issued or issuable under the proposals.
- Cortrophin Gel: After an FDA Refusal to File letter in April 2020, ANI was working on a complete supplemental NDA resubmission and anticipated submitting in Q2 2021. Pre-launch expense was $38,000 in Q1 2021 versus $4.6 million in Q1 2020. Timing and approval were uncertain.
- Subsequent acquisition: On April 1, 2021, ANI acquired rights to OXISTAT, VEREGEN, Pandel, and ApexiCon E for $18.5 million plus approximately $2.2 million for inventory; it funded the purchase with a $24 million revolver draw.
- Liquidity: Management said cash, expected operating collections, and the available revolver were expected to meet working-capital needs and debt obligations for at least 12 months. That assessment preceded the subsequent acquisition and planned Novitium financing.
- Operating risks: COVID-19 was associated with weaker generic prescription activity and minor supply-chain disruptions; facilities remained open. ANI also cited dependence on single-source API suppliers, regulatory and product-approval risk, and customer concentration: three customers represented 68% of Q1 revenue, while receivables from them were 73% of net accounts receivable.
- Legal and regulatory matters: Disclosed proceedings included Arbor litigation, Bystolic antitrust claims, a vancomycin patent suit, and product-liability matters. ANI said it could not estimate potential losses for certain cases. Two products marketed without approved NDAs/ANDAs generated $3.8 million in Q1 revenue. A federal generic-industry investigation remained ongoing.
Important facts for investors to verify
- Whether the Novitium transaction and related shareholder approvals were completed, and the final debt, equity, cash, and earn-out terms.
- Whether Cortrophin’s supplemental NDA was resubmitted and the FDA’s subsequent review outcome and launch implications.
- Whether reported revenue and earnings remain supported after excluding the $11.2 million final royalty, which ANI does not expect to recur.
- Subsequent liquidity and leverage after the April revolver draw, acquisition financing, and scheduled debt repayments.
- Developments in material litigation, the federal investigation, and the Israeli tax withholding dispute affecting royalty-related escrow cash.
- Trends in generic prescriptions, product pricing and mix, customer concentration, and API supply continuity.